Production growth, new processing infrastructure and increased use of rail are shifting traditional flow patterns in the propane industry. New production and processing is adjacent to historic centers of consumer demand in the Northeast and Mid-Continent – reducing seasonal risks of shortage. Rail distribution improves delivery flexibility. The supply chain has to be flexible enough to balance seasonal consumer demand with increased chemical processing and high export volumes. Today we describe improved regional interconnectivity.
This blog and others in the series are based on an analysis recently completed by RBN for the Propane Education and Research Council (PERC). PERC engaged RBN to assess market developments that could impact the prospects of disruptions similar to the one that occurred in the Perfect Storm winter of 2013-14, and to suggest actions that could alleviate the risk of such market turmoil. The project was completed in August and with the permission of PERC, this blog series summarizes some of RBN’s analysis and conclusions.
This is the sixth episode in the series. Episode 1 provided an overview and introduction to the analysis – beginning with the dramatic increase in propane production over the past 7 years. Total U.S. propane output has increased by nearly 70% from an average of 0.8 MMb/d in 2008 to 1.4 MMb/d during the 1st half of 2015. Most of that growth has been driven by production from gas processing plants that has more than doubled from 0.5 MMb/d in 2008 to 1.1 MMb/d in 2015. The overall growth in propane has outpaced domestic demand such that as much as 50% of the total is now exported to balance the market – even as inventories are at all time high levels. RBN’s analysis for PERC sought to understand changes to the propane market since the disruptive winter of 2013-14 as well as how susceptible today’s market is to similar events and what actions should be taken to reduce the risk of it happening again. Our approach to the analysis involved developing a monthly model of U.S. propane supply, demand, logistics and pricing at the PADD (Petroleum Administration District for Defense) level using historic propane market data. In Episode 2 we outlined supply and demand scenarios for the model based on oil price Growth and Contraction as well as Normal and Severe weather patterns. Episode 3 took a closer look at propane production by PADD region – noting the dramatic growth in the Northeast as well as the Midwest. Episode 4 detailed regional historic and future projected propane demand by PADD and Episode 5 looked at the main domestic propane demand sectors and the projected influence of weather on future consumption. This time we highlight how new infrastructure has improved interregional connectivity across the propane market.
Across the U.S., about 70 new natural gas liquid (NGL) processing plants are being developed in addition to the 100 plants completed over the past three years. Fractionation capacity to support these processing additions is also being added (see Talkin’ ‘Bout My F-F-Fractionation). These developments are significant because increases in NGL production and processing capacity are being developed in the Northeast (PADD I) and the Mid-Continent (PADD II) - geographically adjacent to the largest propane consuming regions in the U.S. PADD II already produces more propane than it consumes on an annual basis, and PADD I is not far behind. With more local supply in these markets, the supply chain is shorter, more reliable and more responsive.
New infrastructure to transport, store and distribute propane is also being added to the supply chain. Thirteen new NGL pipeline projects are being developed, on top of a dozen pipeline projects brought online last year (2014). Most move mixed NGLs (Y-grade) to fractionation centers, increasing propane supplies in those areas. But other pipeline projects are intended to move ‘purity’ products, including propane. One such project, Enterprise’s Marcellus Connector, is designed to provide a bi-directional pipeline ‘bridge’ between growing supplies in the Marcellus/Utica region in the Northeast to markets in the Midwest (see Can’t Get Next to PADD II). This would provide an important bridge between PADDs I and II, allowing one PADD the ability to quickly and efficiently respond to supply shortfalls in the other. That is good news for supply reliability.